Forex Signal Services Are A lot Of Work

The Lien Schlossberg signal service I've been using in addition to my own trading signals kept me very busy last week.  As I've said before, they don't send out signals that allow you to place a limit order.  All of their signals require a market order and if you aren't sitting in front of your computer with your platform open, you may miss the entry.  I was still able to enter a trade for every one of their signals with minimal slippage.  They didn't have a great week though, losing 91 pips.  

I lost only 12 pips using my own signals.  I had a decent trade on Friday that captured 78 pips.  It was a good trade because I did not violate my rules like I had in the past.  After I entered into a 3 lot GBP/USD position, my positions fluctuated from profit to loss.  I was not once tempted to exit before my targets were hit.  I may be able to attribute this to the confidence I have in my system.  Over the past 5 months, my h-system has been profitable by 900 pips.  http://www.forexproject.com/H_Trading_System/

Halfway through the month of January, I'm up 127 pips.  I'm still shooting for 5 straight months of profitability.

What Happened With My Oanda Account

The big GBP/USD move that I was talking about yesterday did happen this morning but I'm a little disappointed with what happened in my Oanda account.  I had 2 orders in last night to go long on the GBP/USD. (h-system)  The 2 lot order was canceled by Oanda.  The 1 lot order was executed and then immediately closed at a loss.  According to Oanda it was a TAKE PROFIT.  A loss of 16 pips doesn't seem like a TAKE PROFIT to me.   If my orders were executed and take profits executed as I instructed, it would have been a 120 pip profit.  The fact is, there was a large spike in the GBP/USD due to the surprise rate hike by the Bank of England.  I'm not sure how Oanda treats these types of things due to this fact but I'm waiting to hear back from them.

BOE Shocks With Rate Hike to 5.25%

Good Start To The New Year

I had a decent start to 2007 with two h-system trades this week.  The first generated a profit of 96 pips and the second, a profit of 120 pips.  So after the first week of trading this year, I'm up 216 pips.  These were the only two trades I stuck with this week.  What happened to the trades that I didn't stick with?  The first was the GBP/USD trade I mentioned earlier in the week that I just guessed on direction. http://www.forexproject.com/Blog/Investing_and_Trading/Forex_Is_No_Guessing_Game
After placing the trade, better judgment took hold and I closed it at break even.  This trade would have turned out to be unprofitable.  Another trade I placed was a short AUD/USD.  I closed this too after opening it at break even.  This trade would have been very, very profitable.  I'm still glad I closed it though because my focus was being taken away from my current strategy.  This trade was more experimental than anything and once again, better judgment took hold.

I didn't take any Lien Schlossberg trades this week.  The first trade call came in when I wasn't ready and by the time I was, the first target was hit.  The second trade call was profitable but for the currency pair NZD/JPY.  Oanda and FX Engines don't directly offer this pair so I would have had to do it in the legs.  This means if they were recommending a 1 lot NZD/JPY short trade, I would have had to short 1 lot of NZD/USD and .6982 lots of USD/JPY.  The entry would have been fine but exiting more difficult.  I couldn't use their recommended target or stop for the NZD/JPY so I would be forced to manually watch this pair's real-time price to know when to close out my "legs." This was just more trouble than it was worth so I passed on the trade.  Their service was profitable on paper; 39 pips.   This is just my opinion but they definitely seem like they are playing it ultra cautious to kick off their paid service.  Another issue is with their actual calls.  They never have a predetermined entry price, they always make the call at the market price.  This doesn't give you sufficient time sometimes to enter the trade.  First you have to receive and read the email or text message.  Then you have to open your trading platform.  Then you have to place the trade.  I'll continue to see how it goes but this week was a wash using their service.  I still have the opportunity to cancel at the end of the month at no cost to me if it doesn't work out.

NFP this morning created some nice moves as usual.  I just watched from the sidelines, hesitant to "guess" before the release.  The movement was so rapid after the release that I just wouldn't have felt comfortable entering a trade.  Maybe one day I'll be able to trade economic releases but it's definitely not in my plans right now.  

Smart trading….

What a Setback!

All I can say is that I had quite a setback today.  I'm writing this as my positions just closed out so I'm really disappointed at my stupidity.   Quite simply, I was trying something new and I got bit.

I was short on a 3 position GBP/USD trade that was profitable most of the European session yet not enough to hit breakeven or profit targets.  Then came the US CPI economic announcement this morning.  I have never felt comfortable being in any position going into an important US announcement and this time was no different.  I took my stop losses off the positions with the thought that I would close manually 1 minute after the announcement if my positions were down.  My reasoning? I wanted to prevent from a false spike taking me out of the positions which had happened many times before only to find out I was right.   If anyone was watching the market, you know what happened.  The price did spike but got pegged GBP bullish, the complete opposite of my positions.  I didn't even have time to close out my positions in a timely manner.  I painfully closed all 3 positions at a 75 pip loss each which was 2 1/2 times greater than my normal stop.  

This trade hurts for many reasons:

1. I went from being profitable by 129 pips in December to -96 pips in December
2. Went against my own good judgment
3. I was very patient all week and lost it in a minute
4. Not only does this wipe out my profits for December but also for November and part of October

So you can see how damaging 1 trade can be and it's not even the money that affects me as much as the mental setback.  It's going to take some work to get back to where I was.  

The positives from all of this? I don't foresee ever taking my stop loss off the table again.  Never, ever.  In addition, sometimes I need a big punch in the face to remind me that things like this can happen. 

New Forex Trading System

I was busy this weekend doing backtesting.  I focused primarily on backtesting the H-system to improve on its performance.  I was able to obtain much better results by letting the third lot position run which is pretty much what I thought even before backtesting.  I was also able to obtain better results by using a breakeven stop.  My initial stop-loss is always set to 30 pips and I found that moving the stop-loss to breakeven when the position was up 25 pips was optimal.  I know this is only 5 pips from the target but nevertheless, this produced better results than without a breakeven stop or with a breakeven stop lower than 25 pips.  The GBP/USD is a mover and it needs some room to move.  From my experience, it's tough to find profitability with a stop lower than 30 pips.

In the process of coding the backtesting of the H-system, I created a new system that is basically a derivative of the H-system.  This new system isn't difficult to backtest manually so I did it for 2 years but I decided to automate it too just in case I made human errors.  The results from manually and automatically testing were very similar.  This new system is actually more profitable than the H-system on paper.  Like I said over the weekend, I don't want to jump to any final conclusions but by developing a standard backtesting infrastructure, the mistakes that I may have encountered before are lessened.  Therefore, I'm pretty confident with the results.  Now it's time to forward test this new strategy.  My weakness or possible downfall may be my willingness to forward test with real money.  I decided to do this with this new system today, profiting 21 pips on 1 lot.  Here is the equity curve of my newest system from January 2005 to present making the assumption that I'm starting with $10,000.  The label "Profit in USD" in the graph below is wrong.  It should read, "Equity in USD."

 

 

 

 

 

 

 

 

 

 

 

Mistake Costs Me

I wanted to give a quick trading update since I haven't talked about it in a while.  I've been quite the flip-flopper trading the H-system.  I was going to give it up, then I decided to stick with it, then it was depriving me of sleep so I stopped again, but now I'm trading it again.  One of the reasons I decided to start trading it again was because of the alerting capability that I discovered in Metatrader.  I'm sure a lot of you were well aware of this functionality but for some reason, I just never explored it.  Having the ability to set sound alerts will help immensely with this system.  Alerts will still wake me up from a dead sleep but not during unnecessary times. 

I set an entry last night that was triggered between 1:00 am EST and 1:30 am EST.  This time period falls outside of the allowable times that the H-system rules state so the entry really was a mistake.   From my observations, I just found that the GBP/USD is erratic during this time and therefore I don't trade during this time.  This morning, I lost 90 pips because of this mistake but I was able to make it back on a discretionary trade of the GBP/USD that netted 103 pips.  This brings me to money management.  I entered this trade with 2 profit targets.  The first profit target was hit without any intervention from me and the position closed.  My second profit target wasn't hit but I decided to close the position out at around 7:45 am because of 3 reasons:

1. Economic releases this morning and afternoon – I've always had a hard time trading longer term charts (this trade was generated from the daily chart) because I just am not patient enough to wait for my profit target to get hit.  I worry that an economic announcement can wipe out any gains from this position. 
2. Fear – Like I stated in #1, I was worried about an economic announcement wiping out my gains.
3. The previous trade - Since I lost 90 pips on my previous trade, I was content with taking profit because the gains make up for the loss.

I don't know if any of the 3 reasons above are valid reasons for exiting my position prematurely.  My reward/risk going into the trade was 2:1 but by exiting it early, I really only got a reward/risk of slightly over 1:1.  

Trading Quandary and Sleep Deprivation

Over the last 4 weeks or so, I've been attempting to stick to the H-system which usually trades during the European session.  Though I've managed to automate a good portion of this system, it stills requires some filtering at point of entry.  I've been losing a lot of sleep during this time sometimes waking up in the middle of the night to either manage the positions or to determine whether the filters nullify the trade signal.  Well, I've managed to burn the candle to the point where I just cannot get up in the middle of the night anymore.  If I was actually trading forex for a living though, there is no question that I would work my life around the European session.  The moves during this session are sometimes driven by economic announcements but I've found the slippage associated with entering or exiting a position much smaller or non-existent compared to the US session announcements.  So basically, the lack of sleep has forced me to re-group and to think of a better way to trade this system and still get the much needed sleep that I require.  

In the meantime, I'm attempting to get back into less systematic methods of trading not only because I think discretionary trading may be a necessary complement to systematic trading but also because I find that it can potentially lead to the creation of a more automated system.  I'm already violating my #1 point from last week in my Trading Performance Update and Ramblings post.

I missed an H-system trade early this morning (I was sleeping) which would have been profitable by over 100 pips but I at least managed to pull off a 60 pip profit on 2 USD/JPY positions this morning and a 20 pip profit on 1 GBP/USD position yesterday to get me back in the black for November.  I'm currently up 34 pips for November and if I can remain profitable for this month, this will be the third straight month of profitability.  

I've found that I've been very good over the last couple of months keeping impulse and just blatant stupidity out of my trading.  My goals are pretty straight forward and I know that one dumb move can wipe out everything I've accomplished.  I'd like to compare this to quitting smoking.  I've quit smoking on and off over the years and would have been successful if it were not for isolated incidents.  These isolated incidents like when I go out drinking at the bars involve going outside for just one smoke.  This one smoke has managed to prolong my habit.  One smoke turns into another and then seeps into subsequent days when I'm not out with friends but when I'm at work or home or stressed or whatever reason I can find to continue.  One bad decision can lead to many more and however minor a violation it seems to your goal, it actually turns out to be the whole reason why you're failing.  Some of you have probably never smoked and therefore cannot relate to this analogy.  For that, you are lucky.

Trading Performance Update and Ramblings

The H-system has performed well since I started trading it again; it looks like October may be one of my most profitable months trading.  On Friday, I was up 287 pips.  Yesterday, I captured 90 pips and today I'm up 40 pips on my closed lots with a guaranteed profit of 30 pips on my only open lot.  That brings the total to 447 pips for October.  

I've been working on a couple more systems to add into the mix.  The goal for me right now is to trade multiple systems and to incorporate additional currency pairs instead of just the GBP/USD.  One system that I just finished backtesting on 5 years of data uses the USD/JPY only and trades during the Asian and European sessions.  It certainly loses more than it wins but the average reward/risk on each trade is 2:1. 

As this journey continues going forward, certain things that I was told when I first started trading become realized more and more each day.   All of these things are based on what I personally have noticed over the past year and don't necessarily mean they are true to you.  Remember that I've only been trading currencies for a year.  I may look back at this post a year from now and roll my eyes wondering how I could have ever thought this.  

1. I have to keep discretionary trading to a minimum.  This doesn't mean that I won't use any bit of discretion when trading but my personality is more suited to trading systematically with a touch of discretion.  The systematic part is present in each and every trade but the discretion may or may not be needed in a particular trade.  
2. You don't have to win more than you lose.  This means making money management the most important part of your system.  In fact, I shouldn't make winning or losing my #1 goal.  The #1 goal should be to preserve my capital. 
3. Searching for the holy grail is not fruitless.   This may sound contradictory but there is nothing wrong with trying to find the holy grail as long as you remain realistic.  Trying to find that perfect system helps one come to that realization that there may not be one.  Searching also provides one with experience and motivation to find the best of the best.   The holy grail to me doesn't have to be a system that wins 100% of the time.  It can be a system that suits me best and produces an outcome that is favorable to my trading experience. 
4. I don't need a mentor because I have you and you have me.  I'm not saying that I can provide you with advice on how to do this for a living nor am I saying that a mentor won't help you.  I'm saying that you have every other trader at your disposal either through forums or emails that you can tap to get you back on track.  Everyone that has every sent me an email or comment has helped immensely no matter what the question was.  It's actually unbelievable how helpful and honest most people can be.  It helps restore my faith in humanity.  I've also tried to answer every question that was ever posed of me because it's just another nugget that you or I can use to come to our own conclusions.  Rob Booker or any other mentor won't tell you how to be profitable.  Booker will give you advice based on his understanding but it won't work for you until you can put it all together on your own.  For instance, he tries to get his students to trade breakouts of the European session high or low during the US session.  I don't think he expects you to continue trading this forever or continue to follow everything he has to say for the rest of your life.  All he is doing is giving you the discipline to follow a system, tweak a system, and make decisions on your own. 

I have a lot more realizations but I think this is enough for one day.

Biggest Profit In 5 Months

I decided to stick to my trading system this week and today profited 110 pips on the H-system and another 54 pips on my "discretionary" system.  164 pips for one day is tops for me.  My second best day in the previous 5 months was back on September 14th when I profited 133 pips, this also with the H-system.

http://www.forexproject.com/My_Trade_History/

In regards to my discretionary system, it is an old "system" that I decided to start using again yesterday.  As I mentioned in a previous post, this system can probably be more systematized which I'm working to do in the next couple of weeks.  

With 2 1/2 trading days left in October, I'm up 287 pips.  I ended September +286 pips.

http://www.forexproject.com/My_Forex_Goal/  

I'm quitting my job today…..

Just kidding.  I need another 12 months like this before I even consider it. 

As I was exchanging emails yesterday with a fellow trader Mike, we were on the subject of our day jobs.  It made me think how difficult it would be to leave my corporate job in the future if I ever do decide to trade full-time.  Let's face it, my company is handing over a paycheck every other week.  Sure, I have to perform to my abilities and as long as I don't screw anything up or manage to get laid off, I'm guaranteed that this paycheck will be deposited each and every other week.  Obviously this will be far from guaranteed if I trade as my full-time job.  Some weeks I'll actually lose money and some weeks I'll make money.  This is just a fact.  I guess I'll address this if it ever becomes close to reality.  Right now, I'll tuck it away in the back of my mind and focus on learning how to do this.

59 pips

I had a decent trade today catching a lot of the GBP/USD move upward during the European and US Session.  I only traded 1 lot since this was a discretionary trade but nevertheless profited 59 pips.  The H-system didn't generate any signals because of rare Asian session movement.  My discretionary methods do have rules but are not as systematic as the H-system.  I feel like my personality is more geared toward systematic methods of trading and therefore trying to systematize if possible is ultimately my goal.  

I feel like my confusion earlier in the week has waned.  I'm committed to trading the H-system and I'm working hard to manufacture additional systems that could eventually be used in production.  Mike sent me an email yesterday stating that he has had instances, as I'm sure a lot of you have, where he has suffered over 10 consecutive losses.  At no time though did he feel confused because he trusted his system after backtesting it on 10 years worth of data and therefore considered it just part of trading.  He never doubted his system.

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